9:32 p.m. EST, August 30, 2012|By Drew Harwell, Tampa Bay Times
The jackpot of a lifetime arrived last month inside a letter from GMAC Mortgage: an offer to make more than $200,000 in debt instantly disappear.
The lender, the letter said, would slash what the homeowner owed to ribbons, including shrinking her mortgage's $204,000 in remaining principal to about a third its size.
"When they first came across, I thought they were certainly a scam," said St. Petersburg foreclosure lawyer Matt Weidner. "The next thing I thought was, where's mine?"
Credit the National Mortgage Settlement, the $25 billion foreclosure-abuse agreement between state attorneys general across the country and five of the nation's largest banks.
In Florida, these offers have already shaved more than $115 million from residents' mortgage principals. Since March, more than 1,000 borrowers across the state have been informed that their principals would drop by an average of $114,000 each.
Investigated during the "robo-signing" scandal for pushing faulty documents to foreclose and repossess homes, the five banks were placed on the hook earlier this year for billions in direct homeowner relief by the largest consumer-finance settlement in U.S. history.
The settlement, which includes $8.4 billion in aid for Florida homeowners, is being paid out through modifications on monthly mortgage payments, home refinancings and cash incentives. But it's the prized principal reductions, the Holy Grail of mortgage relief, that is turning so many heads.
The settlement has already quashed $1.3 billion in mortgage principals nationwide, an independent monitor reported this week. Short sales, refinancing and other consumer relief have accounted for another $9 billion.
In Florida, the five banks — Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo — have allowed for $1.7 billion in relief to more than 23,000 borrowers through short sales and forgiven debt. Banks have three years to meet the settlement's requirements, which mandate that at least $10 billion nationwide go toward principal reduction for homeowners who are underwater, delinquent or at risk of default.
Wednesday's report stated that nearly $500 million more in further relief for Florida homeowners is already in the works.
The principal-reduction offers are preapproved, but banks' requirements differ. Generally, homeowners must owe more on their mortgage than their property is worth, be at least a few months behind on their mortgage payments, and face a financial hardship or impending default.
The owners of a home in Tampa, for example, received a letter earlier this month from Bank of America offering to slash their $165,000 principal to $98,000, forgive all past debt, and reduce their monthly payments from $1,000 to $650.
Real estate agent Tony Delgado said the homeowners' new principal had been cut so low it was now less than the home's actual value. "If they were to turn around and sell that house right now, they could probably sell it for around $115,000," Delgado said. "So yeah, they're pretty happy."
That's a good start, said Weidner, the foreclosure lawyer, but banks are still getting off easy for billions of dollars of foreclosure abuse. "The reductions going back to homeowners right now are just a fraction of the fraudulent insurance claims [banks] submitted," Weidner said. "It would be like if you robbed a bank and walked away with $10,000, and you gave $10 back."
Wondering whether you might qualify for a refinancing or loan modification, including a reduction in your mortgage principal? Call your bank to ask if you would be eligible under the National Mortgage Settlement or one of the bank's other programs:
•Ally Financial/GMAC: 1-800-766-4622
•Bank of America: 1-877-488-7814
•J.P. Morgan Chase: 1-866-372-6901
•Wells Fargo: 1-800-288-3212
REMINDER: THERE ARE SCAMS OUT THERE SO ONLY DEAL DIRECTLY WITH YOUR BANK